And here is the long update!
I decided that although I might walk away, I did not want to walk away angry. So on Friday I went to talk with him. I explained how I remembered our first meeting where he told me $11K for the tractor and even showed him my notes where I wrote down the prices of three tractors he had showed me. I told him that his raising the price looked either like bad business or that he was taking advantage of me because I had invested in the inspection. I said my only two options are to walk away or to try to continue this discussion. Then I asked him, "what would you do in this situation?"
He immediately said, "I can't go any lower on that tractor." I expected this answer. I tried to get him back to answering my question. He could not/would not do it and kept trying to explain that he made a mistake about how much he had invested and he could not go any lower. I thought this "what would you do" tactic might work, but looking back I don't think he was the type of guy with whom this approach would be effective.
At one point he said, "I don't even remember giving you that number." That upset me because now he is questioning my integrity. I wrote the **** thing down! I said something to the effect of how we could maybe bridge the gap (he was still saying $14,500 for the tractor and
chipper, which observant readers might note meant that even though he wanted $4K for the
chipper he was now giving it to me for $3K). I suggested that he could fix the seat, which was ripped, or he could throw in a rake or plow he had around. He said $14,500 was as-is.
We got nowhere. So, I walked away.

About an hour and a half later I was just leaving from having a drink with my wife and her friends, and he called. I sent the call to voicemail. The voicemail was essentially to call him, he could do a little better. Then the whole drive home I debated how long to wait to call. I decided to just call him and see what he had to say. He said he would split the "difference" and come down to $11,250 on the tractor. I said thanks and hung up.
When I got home I called my buddy (who recently bought a new
BX2660) and we talked quite a bit about the situation. He had also done some research and was impressed by the price I was offered regardless of the unpleasantness of the transaction. He said that although he might walk away on principle, I would have to accept that I might not get a deal like this again. We also talked about how I was not relying on the guy's integrity much anyway as I got the third-party inspection. (This guy is a used tractor guy - it is not like I am ever dealing with him for service or anything else. I consider this the equivalent or a private party sale where even if something later goes wrong I am unlikely to go back to him.) All in all we tried to look at the deal objectively without considering the personal emotions involved.
In the end I chose to swallow my anger a bit and call him back. I told him that if he would deliver (about 40 miles) and fix the seat, I would pay $14,250 for the tractor and
chipper. He tried to get out of the seat but I said, "c'mon, you can swap it off an older tractor you have around and it won't cost you a thing." He finally relented. (I should note also that I do believe he made a mistake in the offer in the first place and was not deliberately trying to screw me.)
The result is here:
New [to me] B7800 and Salsco 824 - TractorByNet.com
The bottom line is that I will not look back on the actual transaction with any fondness (except that I did sort of walk away). But, I am satisfied with with the outcome and that is really what matters most to me. As may be evident from the other thread, I am quite pleased in that I think both the tractor and the
chipper are going to be an outstanding fit for my needs. I look forward to using both for many years to come!